Showing posts with label public sector wages. Show all posts
Showing posts with label public sector wages. Show all posts

Monday, January 5, 2015

5/1/2015: The Value of Better Teachers


Hanushek, Eric A. and Piopiunik, Marc and Wiederhold, Simon, paper, "The Value of Smarter Teachers: International Evidence on Teacher Cognitive Skills and Student Performance" (December 2014, NBER Working Paper No. w20727: http://ssrn.com/abstract=2535179) looks at the differences in teacher quality and the impact of these differences on students' outcomes.

Per authors, "difference in teacher quality are commonly cited as a key determinant of the huge international student performance gaps." The authors "use unique international assessment data to investigate the role of teacher cognitive skills as one main dimension of teacher quality in explaining student outcomes. Our main identification strategy exploits exogenous variation in teacher cognitive skills attributable to international differences in relative wages of nonteacher public sector employees." The study also controls for parental inputs and other factors.

"Using student-level test score data, we find that teacher cognitive skills are an important determinant of international differences in student performance. Results are supported by fixed-effects estimation that uses within-country between-subject variation in teacher skills."

First table below shows basic estimation results highlighting the positive effects of teachers skills (in maths and reading) and parental skills on outcomes (in mathematics and zero effect in reading).



Second table above shows sample statistics. An interesting comparative in terms of Irish teachers' skills being very much average and ranked below average in the group of countries.

Third table below shows more advanced econometric controls for estimation, showing qualitatively similar results as above


And finally, chart below showing Ireland's relative position, compared to other countries in terms of the relationship between teacher skills and students' outcomes:


The above clearly shows below average link between teacher skills and student outcomes for Ireland (which are sub-standard relative to the average) in maths and slightly above average link between teacher skills and student outcomes in literacy (which are above average in terms of outcomes, but near average in terms of the teachers' skills effects).

The key, from my point of view, is that the paper shows a clear link between measurable metrics of teacher quality and measurable outcomes for students, while controlling for a number of other factors. This supports my view that pay-for-performance can and should be used to incentivise, support and promote better teachers, and that such system of compensation can be of benefit to our students.

Our education system pursuit of homogeneity and collective bargaining-set pay scales is outdated, outmoded and inefficient from social and economic point of view. Our teachers and students deserve better. Reforming education system should not be about reducing average wages and earnings, but realigning rewards with effort and outcomes.

Sunday, December 1, 2013

1/12/2013: The Age of Great Stagnation: Sunday Times, 24/11/2013

This is an unedited version of my Sunday Times column from November 24, 2013.


In recent months, the hope-filled choir of Irish politicians raised to a crescendo the catchy tune of the return of our economic fortunes. Their views are often echoed by some European leaders, themselves eager to declare the euro crisis to be over. Earlier this year, as the euro area remained mired in official recession, the perpetually optimistic Economics Commissioner, Olli Rehn, summarised the economic environment as follows: “…we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future.”

Since then, we had ever-disappointing hard data through September this year, un-interpretable volatile soft data, and an ever-booming confidence in the future. This pattern of rising expectations amidst non-improving reality has been with us for over two years.

Which raises two questions. Firstly, is the fabled recovery we are allegedly experiencing sustainable? Second, are we betting our economic house on a right horse in the long run?


In our leaders’ imagination, this country’s prospects for a recovery remain tied to those of the euro area. The official theory suggests that growth in our major trading partners will trickle down to our exports, which, in turn, will drive domestic economy via improving investment and consumer spending. This theory rest on the fundamental belief that things have hit their bottom in Ireland and the only way from here is up.

These are the two core theories behind the short-term projections that underpinned Budget 2014. And, taken with risk caveats highlighted this week by the Fiscal Council assessment of the Department of Finance projections, the views from the Merrion Street represent a rather optimistic, but reasonably feasible forecast for 2014.

Alas, in the longer run, a lot is amiss with the above two theories. The most obvious point of contention is that we've heard them before. And so far, both turned out to be wrong.

Over 2009-2013, cumulative real GDP across the euro area shrunk by 2.1 percent, and expanded by 3.5 percent across the G7 countries. In Ireland, over the same period, GDP fell by 4.7 percent. The tail of Ireland was wagging the dog of the EU on the way down into the Great Recession.

The converse is true on the way up. Unlike in the early 1990s, the improving economic fortunes abroad are not doing much good for Ireland’s exports either. Over the last four years, volumes of imports of goods by the euro area countries grew by almost 15 percent and for G7 these went up 21 percent. Irish exports of goods over the same period of time rose just 2.2 percent. Global trade, having shrunk in 2008 and 2009 has been growing since then. Again, Ireland missed that momentum.

Over the crisis period, growth in our exports of goods and services did not translate into strong growth in our GDP and was completely irrelevant to the dynamics of our GNP or national income. The reason for this paradox is that our goods exports have shrunk 3.57 percent in 2012, having posted declining rate of growth 2011 compared to 2010. The rate of their decline is now accelerating. In January-September this year our exports of goods fell 6.7 percent compared to the same period a year ago. Goods trade is the core employer of Irish workers amongst all exporting sectors and the main contributor to the economy at large.

Instead of goods trade, our external balance expansion became dependent solely on ICT services and a massive collapse in imports.

Much of the former represent transfer pricing and have little real effect on the ground. As the result, our exports growth came with virtually zero growth in employment, domestic demand or investment. We don't need to dig deep into the statistics to see this: over the period of our fabled exports-led recovery, Irish private sector prices and domestic demand both followed a downward path.

The latter, however, presents a serious risk to the sustainability of our debts. To fund our liabilities, we need long-term current account surpluses to average above 4 percent of GDP over the next decade or so. We also need economic growth of some 3-3.5 percent in GDP and GNP terms to start reducing massive unemployment and reversing emigration. Yet, to drive real growth in the economy we need domestic investment and demand uplifts. These require an increase in imports of real capital and consumption goods. Should our exports of goods continue down the current trajectory, any sustained improvement in the domestic economy will be associated with rising imports and, as a corollary, deterioration in our trade balance.

This, in turn, will put pressures on our economy’s capacity to fund debt servicing. And given the levels of debt we carry, the tipping point is not that far off the radar.

In H1 2013 Ireland's external real debt (excluding monetary authorities, banks and FDI) stood at almost USD1.32 trillion - the highest level ever recorded in history. Large share of this debt is down to the IFSC and MNCs sector. However, overall debt levels in the Irish system are still sky high. More importantly, the debt levels are not declining, despite the claims to the aggressive deleveraging of our households and banks. At the end of H1 2013, total real economic debt in Ireland - debt of Irish Government, excluding Nama, Irish-resident corporates and households - stood at over EUR492 billion - down just EUR8.5 billion on absolute peak attained in H3 2012. In other words, our current debt levels are basically flat on the peak and are above the highs attained before the crisis.


With all the talk about positive forecasts for the economy and the world around us, we are desperately seeking to escape three basic truths. One: we are facing the risk that neither exports growth nor the reversals of our foreign trade partners' fortunes are likely to do much for our real economy. Two: the real break on our growth is the gargantuan burden of combined household, government and corporate debts. And three: we have no plan to deal with either the former risk or the latter reality.

Instead of charting our own course toward achieving sustainable long-term competitiveness in our economy, we remain attached at the hip to the slowest horse in the pack of global economies – the euro area. This engine of Irish growth is now seized by a Japanese-styled long-term stagnation with no growth in new investment and consumption, and glacially moving deleveraging of its banks and sovereigns.

Governments across the EU are pursuing cost-cutting and re-orienting their purchasing of goods and services toward domestic suppliers. In this zero-sum competition, small players like Ireland are risking being crushed by the weight of financial repressions and domestic protectionism in the larger economies.

These forces are not going to disappear overnight even if growth returns to Europe. According to the global survey by Markit, released this week, one third of companies worldwide expect their business to rise over the next 12 months. By itself - a low number, but a slight rise on 30 percent at the end of Q2 2013. Crucially, however, improving sentiment does not translate into improving economic conditions: only 14 percent of companies expect to add new employees in 2014.

As per financial repression, euro area banks remain sick with as much as EUR 1 trillion in required deleveraging yet to take place and some EUR350-400 billion worth of assets to be written down. Should the banks stress tests uncover any big problems there is no designated funding to plug the shortfalls. According to the Standard Bank analysts' research note, published this week: "Increasingly, European governments are resorting to tricks to resolve the problems of their banking systems, including inadequate stress tests, overly optimistic growth and asset price forecasts, and some unusual accounting stratagems."

Which foreign government or private economy is going to start importing Irish goods and services or investing here at an increasing rate when their own populations are struggling to find jobs and their banks are fighting for survival.


Meanwhile, we remain on a slow path to entering new markets, despite having spent good part of the last 6 years talking about the need to 'break' into BRICS and the emerging and middle-income economies. In January-September 2012, Irish exports to BRICS totaled EUR2.78 billion. A year later, these are down EUR240 million. Controlling for exchange rates valuations, our exports to the key developing and middle-income markets around the world are flat since 2010.

We are also missing the most crucial element of the growth puzzle: structural reforms that can make us competitive not just in terms of crude unit labor costs, but across the entire economic system. Since 2008 there has been virtually no changes made to the way we do business domestically, especially when it comes to protected professions and state-controlled sectors. Legal reforms, restructuring of semi-state companies’ and the sectors where they play dominant roles, such as health, transport and energy, changes to the costs and efficiencies in our financial services – these are just a handful of areas where promised reforms have not been delivered.

Political cycle is now turning against the prospect of accelerating such reforms with European and local elections on the horizon. Reforms fatigue sets in. The relative calm of the last 9-12 months has pushed all euro area governments into a false sense of security.

The good news is that the collapse phase of the Great Recession is over. The bad news is that with growth of around 1.5 percent per annum on GDP we are nowhere near the moment when the economy starts returning to long-term health. I warned about this scenario playing out over the next decade in these very pages back in 2008-2009. Given the latest projections from the Department of Finance and the IMF, we are firmly on the course to deliver on my prediction.

Welcome to the age of the Great Stagnation.




Box-out:

Recent research paper from the European Commission, titled The Gap between Public and Private Wages: New Evidence for the EU assessed the differences between public sector and private sector earnings across the 27 member states over the period of 2006-2010. The findings are far from encouraging for Ireland. In 2010, Irish public wages were found to be some 21.2 percent higher than the comparable wages paid in the private sector. The study controlled for a number of factors impacting wages differentials, including gender, age, tenure in the job, education and job grades. Strikingly, the study found that wages premium in the public sector was higher for women, for younger workers and for less skilled employees. A positive public wage premium was also observed at all levels of educational attainment with the largest premium paid to workers with low education and the lowest to workers with medium levels of education. If in 2006 Irish public sector wage premium stood on average at 20.5 percent, making our public sector wage premium second highest in the EU27, by 2010 we had the highest premium at 21.2 percent. It is worth noting that in all Nordic countries of Europe, the wage premium to public sector workers was found to be negative in 2010.

Thursday, December 20, 2012

20/12/2012: Pensions, health costs & education fees for 2014-2015


Staying with the IMF report on Ireland, and with the theme of 2014-2015 adjustments, here's again what the IMF had to say on what we should expect from the Government:

"The authorities should outline the remaining consolidation measures for 2014–15 around the time of Budget 2013 (MEFP ¶8). The program envisages additional consolidation of 3 percent of GDP over 2014–15. Taking into account the measures already specified for these years (such as on capital spending), and carryover savings from earlier measures, new measures of about 1½ to 2 percent of GDP remain to be identified for 2014-15."

I wrote about the above here. But there's more:

"To maximize the credibility of fiscal consolidation, and to reduce household and business uncertainties, the authorities should set out directions for some of the deeper reforms that will deliver this effort. These could include, for instance, on the revenue side, reforming tax reliefs on private pension contributions; and on the expenditure side, greater use of generic drugs and primary and community healthcare, and an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost."

Further, per box-out on Health costs overrun: "there is scope for increased cost recovery in respect of private patients‘ use of public hospitals"

Hence, per IMF, the Government should hit even harder privately provided pensions (on top of the wealth tax already imposed), thus undermining even more private pensions pools and increasing dependency on state pensions. For those of us with kids, IMF - concerned with already unsustainably high personal debt levels - has in store more debt. This time to pay for our kids education. And for those of us with health insurance, there is more to pay too.

The above combination of measures is idiocy of the highest order. Per IMF, Irish economy is suffering from private debt overhang which leads to more deleveraging, less consumption and less investment. And these lead to lower growth. I agree. But what IMF is proposing is going to:

  • Increase private debts and reduce the speed of deleveraging, and
  • Raise the demand for already stretched public services.
This is the Willie Sutton moment for Ireland: the state (with the IMF blessing) is simply plundering through any source of money left in the country is a hope of finding a quick fix for Government insolvency. Now, with low hanging fruit already bagged, this process is starting to directly impact our ability to sustain private debts. But no one gives a damn! As Sutton, allegedly claimed, it makes sense to rob banks, because that is where the money are. Alas, with banks out of money, the Government, prompted by the IMF 'advice' is going to continue robbing us.

So a message to our Pensions industry, which hoped that going along with expropriation of customers' funds via pensions levy would allow the industry to avoid changes to tax incentives on pensions (the blood of the sector demand). Prepare for tax reliefs savaging. Once you fail to stand up to the bullies and protect the interests of your customers, you deserve what you are going to get. Every bit of it.

Wednesday, December 19, 2012

19/12/2012: Fiscal Issues, flagged by the IMF


Keep on reading the IMF report, folks. Nice little bots on offer regarding the fiscal programme performance.

Platitudes abound, well-deserved, but...

"A combination of slower growth, higher unemployment, and the over-run in health spending, have dimmed prospects for any significant fiscal over performance in 2012. Indeed, given the weak economic conditions, only about half of the 6 percent of GDP consolidation effort over 2011-12 has translated into headline primary balance improvement. [Meaning that we've been running into a massive headwind, with pants caught on rose bushes behind us...] Nonetheless, the authorities‘ consistent achievement of the original program fiscal targets despite adverse macroeconomic conditions gives confidence in their institutional capacity and commitment to consolidation."

Question is, when will rose bushes thorns get our fiscal pants shredded? We don't know, but here's the road ahead:
Of course, we knew this before, but it is a nice reminder that Enda Kenny's claim that Budget 2013 is going to be the hardest of all budgets is simply bull - the above figures have to be delivered on top of Enda's 'hardest' Budget 2013. Per IMF, however:
"The program envisages additional consolidation of 3 percent of GDP over 2014–15. Taking into account the measures already specified for these years (such as on capital spending), and carryover savings from earlier measures, new measures of about 1½ to 2 percent of GDP remain to be identified for 2014-15.

"To maximize the credibility of fiscal consolidation, and to reduce household and business uncertainties, the authorities should set out directions for some of the deeper reforms that will deliver this effort. These could include, for instance, on the revenue side, reforming tax reliefs on private pension contributions; and on the expenditure side, greater use of generic drugs and primary and community healthcare, and an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost."

In other words, the Government will have to find somewhere around €3-3.2bn more cuts/tax hikes in 2014-2015 on top of those already factored in for 2013.

Now, in spirit with IMF paper, let me reproduce for you a box-out from IMF report on public sector wages in Ireland:


Enjoy the above - you can enlarge the text by clicking on the images.

Saturday, April 4, 2009

Public Sector's Missing 'Pains'

Charts below are self-illustrative:
  • Public Sector Employment is up,
  • Public Sector Wages are up,
  • Public sector wages dispersion is extremely low across all categories, so Unions' claim that in some sectors wages are too low simply does not add up (per above and below)
  • Cost Savings promised in July 2008, September 2008, October 2008, November 2008, December 2008, January 2009, February 2009, March 2009 and that will be promised comes next week's Mini-Budget are nowhere to be seen.
A lesson to be learned by Brian^2+Mary: you can announce vacuous plans but we'll catch you.

A lesson to be learned by voters: they (Brian, Brian & Mary) don't give a damn if we know or not.